Hermes Sales Growth Slows Against Tough Luxury Backdrop
The timing of a Chinese recovery has been a major question for the industry
Hermes RMS -7.48%decrease; red down pointing triangle said sales growth lost pace in the third quarter, as hopes of a recovery in luxury demand dwindle.
The French luxury house booked revenue of 4.1 billion euros ($4.61 billion) for the quarter through September, 4.3% higher than in the same period a year earlier at constant currencies. In the second quarter, the Parisian maker of high-end handbags and silk scarves logged a 6.7% increase in revenue.
The stock traded 6.7% lower at 1,264.50 euros, after what Deutsche Bank analysts described as disappointing quarterly results.
Luxury names have been navigating a tough market in recent years, mainly due to sliding demand for high-end goods, especially in China, where European brands also face rising competition from local labels. The war in Iran represents another blow, as the Middle East is a key travel hub for Asian tourist flows to Europe.
The timing of a recovery in China has been a major question for the industry, which had come to rely on spending by the country’s wealthy shoppers at home and abroad.
However, China’s economy remains choppy, prompting consumers to keep to a tight budget. “The macroeconomic context isn’t favorable,” Hermes’ executive vice-president of finance, Eric du Halgouet, said during an earnings call.
Last week, Louis Vuitton owner LVMH warned that weak demand in the country weighed on the performance of its crucial fashion and leather goods division.
“We remain confident in the potential of China,” du Halgouet said, noting that, for now, consumer trust in China is still low and consumption remains unchanged. Lower footfall in Chinese stores has hurt sales of fashion accessories, watches and shoes, he said.
The company said it had stepped up security at stores in its home market following recent protests. Although it is still too early to assess the impact of the demonstrations in France, its Marseille store won’t reopen anytime soon due to damage, du Halgouet said.
Despite economic, geopolitical and monetary uncertainties, the company continues to expect revenue growth at constant exchange rates in the medium term.